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Junk Bond Yields Lowest of All-Time

Junk Bond Yields Lowest of All-Time

| December 21, 2020
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Junk bond yields have fallen to their lowest levels ever with the representative Bloomberg Barclays US Corporate High Yield Index sinking to a historical low of 4.56% on November 9th. While nominally remaining “high yield” as compared to municipal and treasury issues during an extended low interest rate environment, junk bonds were yielding as much as 8% in 2019 and had spiked above 11% during the initial stages of the pandemic. The record low yield may be seen as a positive sign reflective of increased investor confidence in the economy, especially on the heels of Pfizer’s news regarding a vaccine for coronavirus. The fast falling yields are further amplified by continued Fed purchases and a global hunger for significant yield among yield starved investors. With so many companies having their debt downgraded in the past year, junk bonds now comprise over 95% of the total debt of US companies.1 According to Moody’s, the current default rate of 8.5% is well below the 14% and 16% default rates of the past two recessions.2

1 https://www.econlib.org/library/Enc/JunkBonds.html#:~:text=The%20market%20for%20new%2Dissue,investment
%2Dgrade%20companies%20to%20market
2 https://www.ai-cio.com/news/biden-tax-hikes-help-junk-bonds-says-market-savant/

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